As you look at your monthly cash flow, wouldn’t it be great if, in addition to your paycheck, you had recurring additional amounts deposited. This is one of the greatest concepts in personal finance and it's called having “multiple streams of income.” In this post I will explain why this concept is something we should all focus on.
I have written about the importance of having a cash budget that you diligently use to manage your financial affairs. As I write about budgets, the most emphasis is usually placed on controlling spending or cash outflow. Not enough content is dedicated to taking action on generating more cash income. I will begin to give you more ideas on generating more cash each month.
If you want to build real financial security at any stage of your financial life, it is best that you have multiple streams of income. Let me give you a few examples. If your household has one person who is the wage earner and they lose their job, the family unit is at great risk. If you are over age 65 and your only income source is from Social Security retirement benefits, you are likely to be struggling to pay all your costs of living, as Social Security is only designed to pay a benefit equal to 40% of the receiving person’s wage before they stopped working. In my experience, I have found that the most financially successful people I have met have multiple sources of income.
Different Streams of Income
Here are the most common cash income streams that I have seen:
Wages and salaries or earned income – This is your day job and most people’s primary source of income. It is the income you earn from your base of skills and education.
Business profits – If you own a business, this is your share of the profit the business generates.
Interest income – This is income you make from lending your money out. This would include interest received from savings accounts, personal loans and certificates of deposit.
Dividend income – This comes from owning shares in a company. It is also a major source of income for many people today as interest rates are so low.
Rental income – This is the rent you receive from owning an apartment, home, or other asset that you lease to others.
Annuity income – This is the usually the monthly payments received from an annuity contract that was purchased.
Injury settlements – This is income received as part of a legal settlement in which you were injured and the at fault party was ordered to pay. It is usually paid as part of what is called a structured settlement.
Capital gains – This is money earned when you sell an investment, like stocks, bonds, or mutual funds for more than you paid.
Life insurance cash withdrawals – These are cash amounts withdrawn from cash value life insurance policies or amounts taken as loan proceeds.
Royalties / licensing – This cash you receive from creating a product, idea, or process, and you let someone use it. They pay you a small fee every time they do.
Summary
How many streams of income do you have? Are you diversified? As you travel, the FinancialVerse and continue to increase the amount of cash you accumulate you need to look to build multiple streams of income. You will need to be able to generate capital and carefully invest that money into creating additional streams. Over time, if you keep your expenses in check, and are disciplined about having extra cash generated each month — you can build the multiple streams of income that create the financial security you desire.
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